Contracts For Differences seriously amplify results.. The thing is, it goes either direction.
How it works: You guess at the future price of an asset. If right, you get profits in hard cash. There’s no physical ownership of underlying instruments - this way, you get to access major assets for cheap and more easily than the exchanges allow.
In this guide, we cover the top CFD brokers for that.
Table of Contents:
Our Top Picks of Best CFD Services UK 🇬🇧
Considering diving into CFDs…? When crunching your Trading Data, take time to learn your strategy, platform, and use good financial common sense.
Here a few key things to know about contracts for differences:
- Investors don’t actually buy the underlying asset, they instead bid on potential profits from favourable price movements.
- 🌐 Biggest benefits are accessing underlying assets for cheap (which wouldn’t be directly possible), simpler transactions, and the option to go against the market.
- Main risks of CFDs are potential large losses beyond initial contract sizes, lesser regulations, liquidity, and the continuous need for margins.
1. eToro – Best Overall CFD Platform
From its three-year deal with West Ham United FC, Premier League football, and promotions by Game of Thrones and professional tennis player stars, to the MotoGP team… But does eToro actually hold up for CFD trading?
A key strength of eToro is security. Which matters more when trading contracts for differences, which are in-and-of themselves inherently risky. Common threats include scammers and bots. eToro makes it harder for these illicit players to access its platform by using know your customer (KYC) identity verification and minimum account funding.
KYC and minimum deposit two security features help to keep out scammers and bots, who tend to target free and anonymous platforms. Along with this, if you access a breadbasket of features, primarily quick access to lots of different trading types.
Because eToro infrastructure stretches across the world and different currencies, you also have access to various good currencies, corporations, and commodities. With a news and analysis page for market research and trading tips, and investment announcements of big opportunities. Which makes eToro the best overall choice.
To rephrase the old Spiderman quote, with great security comes less anonymity. So that’s the main trade-off despite its large web of offerings. You’ll also need to trade in the world’s reserve capital, USD, which simply means your cash will go through automatic conversions.
2. Plus500 – Best Dedicated CFD Platform
Plus500 is dedicated to trading contracts for differences, which means getting access to an immense range of trading types and assets that are CFD based.
They’re fully regulated by the FCA, offering many of their financial services for free.
It has more than 70 forex CFDs, spanning most of the major, minor, and exotic pairs, including the US Dollar index. Market conditions are less busy compared to New York, which makes this potentially better-suited as a learning environment.
Plus500 also sits on the London Stock Exchange (LSE), which should have relevance to how you’ll trade on this platform.
The exchange that your trading app is directly plugged into impacts how and what you can trade. In this instance, being based (connected to) the LSE, instead of say the New York Stock Exchange (NYSE), naturally means that Plus500 focuses more on European assets versus U.S. assets. The compound effect of this should not be underestimated for your investments or business.
One example is that London does less lead & steel imports across its weapons sector compared to North American imports. Which means you’ll find more of these commodities for trading in London for cheaper.
Commissions are charged though they are small; the main additional fees to keep aware of are SWAPs (if you hold onto a position overnight), but these are average for the industry. Also currency conversion fees (if the account is different from the profit currency).
3. CMC Markets – Best Low Fee CFDs
CMC Markets has been in the game since 1989, offering CFD and Forex options as its two products. It’s also regulated by the FCA so has a fairly robust track-record for safety and trust in the trading industry, not only in the UK, but among many other countries including Australia.
The platform and user interface are straightforward enough with modern bells and whistles. Use the search bar at the very top to discover different components of the platform, such as assets, research, and trading. CMC Markets also integrates with MT4, if you choose not to use its proprietary platform.
Either way, get access to CFD and Forex across crypto, stocks, indices, and more, including the ASX. A strong, community-backed choice for diverse CFDs at solid rates.
The main weakness is on the security side of things, as it doesn’t offer two-factor authentication, so a good antivirus is a good idea. And although their support includes live chat, email and phone, it isn’t 24/7 (but it’s still difficult to find overwhelming negative customer reviews anywhere online).
4. AvaTrade – Best Custom CFDs
AvaTrade may be the closest contender to eToro for social trading across international markets. There’s tons of options however, so this isn’t one for those still new to CFDs.
The standout capability is being able to customise trades in order to tailor your communications to the other party (buyer or seller).
This feature isn’t always possible with online trading platforms. But AvaTrade as you build up negotiation and trade channels. In order to establish repeat trading your deals and networks. Not many trading apps give their users this flexibility.
They’re actually strictly regulated by the Central Bank of Ireland, as they were founded in Ireland. But there’s branches worldwide, which further opens up liquidity and market availability – these regional incorporations include Japan, Australia, South Africa, and the British Virgin Islands.
Which means you’ll get a wide selection of CFD trading instruments and opportunities for emerging speculations, which include for stocks & bonds, commodities, exchange-traded funds, and indexes. These can happen on numerous platforms, e.g. MT4, WT, AvaOptions, Floating Spreads, with wide compatibility that includes on mobile (iOS/Android).
Despite its social trading integrations (note, these require third party plugins, such as DupliTrade), this isn’t a beginner’s trading tool. That said, it has very interesting higher-level capabilities, chiefly great negotiation features.
5. Trading 212 – User Favourite
Trading 212’s fee structure is optimised for high-frequency trading.
For instance, there are no commissions for CFD based exchange-traded funds and stocks trading. (This stretches to free withdrawals, and no penalties for inactive accounts.)
Although it’s relatively new on the list of trading platforms in the UK, it’s amassed a lot of attention due its rates and super-quick account creation process.
As you hit up the Trading 212 website as a prospective trader: from signing up to verifying your account takes a maximum of 1 day. You need to have your tax information to hand, answer a couple of questions about your personal finances (e.g. investor experience and job status). Within 24 hours, the first deposit can be made and your account will be up and running.
Similar to AvaTrade, Trading 212 enables automated trades and the usual notifications and alerts for things such as price changes across set markers in any market research and analytics pertinent to instruments you are tracking.
There is little to markdown regarding its user interface. Compatibility is bog standard, across mobile and desktop, usable on both iOS and android. Get a succinct neat dashboard, which lets you quickly filter instruments, browse markets, and make trades and execution configurations from a single point of control.
You won’t get as much variety of markets to play with, also forex fees tend to be higher than with other platforms, and customer support is limited (nevertheless, Trading 212 does have a high-volume track-record of positive user reviews).
Buying Guide for Choosing your Top CFD Broker📚
This section is good for newbies still learning how contracts for differences work. It will also help when making a buying decision on the best CFD broker to use:
What are Contracts for Differences?
CFDs Explained: Similar to options trading - and contrasting with traditional investments - they let traders bet on price moves for an asset without owning that asset upfront, and also allow traders investing with or against the market for profit.
In other words, because ownership of the asset isn’t needed, traders can sell off contracts and make gains even if prices fall (known as shorting), or lose if prices rise. Secondly, CFDs open up access to worldwide markets - indices, commodities, and shares, etc - all in the same singular environment.
On any given workday…
Because you don’t own the actual underlying asset, you’re instead purchasing a set number of CFD contracts (also known as CFD units) on the exchange - if it seems the price will go up then you’re buying for profit, or if you think it will drop then you’re selling for profit.
How CFDs are priced reflects real-time price changes across time. Which means it’s sort of like you’re doing traditional investment. If a stock goes up in price, for instance, then you can sell a buy position at a profit.
How much leverage that is enabled on a CFD trade impacts its exposure, and therefore the size of wins or losses. In the screenshot given for Apple, a leverage of 5X has been used in either direction. Therefore, profits and losses are figured out from the price differences between the opening of the CFD and how much it is exited (bought or sold off) for. Either way, results are amplified:
- 5 times more gains are given for each point that the instrument’s price moves in your predicted direction.
- 5 times more losses are given for each point that the instrument’s price moves away from your predicted direction.
In this example: In essence, you are putting up 20% (100 / 5 or roughly £43) of the underlying assets' full market value. The CFD broker loans you the rest, so that you can run a trade that, in fact, has a full value of £215.
Safe CFD Trading Tips
Countries Where You Can Trade CFDs
CFD contracts are illegal in the US. Under the Securities and Exchange Commission (SEC), they can only be traded by nonresidents.
But these contracts are legal in regulated OTC markets, in numerous large trading countries, including the UK, Belgium, Denmark, Norway, Italy, Germany, Switzerland, Singapore, Spain, France, New Zealand, Hong Kong, South Africa, Canada, Thailand, Sweden, and the Netherlands.
Australia recently cut off CFD access to retail traders. Its main financial regulatory body, Australian Securities and Investment Commission (ASIC) announced these changes in the first quarter of 2021. The aim was to bolster consumer safeguards by lowering the potential damage of CFD leverages an associated predatory sales practices.
Advantages of CFDs
Enormous Leverage & Exposure to Global Markets - from One Source
You get extreme leverage compared to most instruments on the traditional financial markets.
Many CFDs have 24/7 access to major worldwide markets. The lower margin needed also means less upfront capital for investment, as well as higher potential gains. But this can amplify losses. Regulations mean that standard leverages are 3% (i.e. 3:1) and could rise to 50% (2:1).
Ability to Go Short
Some markets need you to borrow an instrument first - before being able to sell short - or they have separate margin specs for short and long contracts. CFDs, however, naturally allow shorting without extra borrowing costs because the underlying asset isn’t being owned (e.g. no need to borrow stocks or commodities).
Most of the Same Execution Functions as Traditional Brokers
Many of the best CFD brokers will give you the same order functions such as limits, stops, and contingent orders - for instance “if done” or “one cancels the other.” A few allow guaranteed stops but for extra cost. But brokers in large make their money from spread fees (based on how volatile the asset is; sometimes fixed spreads are offered).
Absence of Day Trading Restrictions
Many traditional markets put minimums on the starting capital for day trading, or limit trading volume frequency for some accounts - but contracts for differences markets do not have this restraint. Accounts can be created for less than £750, but around £1500 and £3700 are the most typical minimum deposits.
Diversity of Trading
Access to a diverse range of financial vehicles - which would be harder to trade on exchanges: currencies, sectors, and indices, stocks, treasuries, and commodities.
Disadvantages of CFDs
Traders need to pay the spreads for every opening and closing of the position which removes the ability to profit on smaller price changes.
There is less regulation in this industry. Brokers are able to survive based on reputation, features, and track-record, rather than governmental oversight or liquidity.
The world of CFD trading requires continuous responsive vigilance. Liquidity and margins are the key two-pronged hazards: Positions can be automatically closed if margins fall short of the minimum, so sudden swing in the wrong direction can end a potentially successful long trade.
Meanwhile, leverage magnifies the possible profits and losses. Stop loss limits cannot provide guaranteed safeguards against sudden price swings or market closures. There may also be latency lags in executions.
The three main CFD costs are as follows:
- Commission (sometimes)
- Financing (sometimes)
- The spread - which you always pay; this is the difference between the asking price and closing price when the contract is closed.
Commodities and forex currency pairs normally don’t have any commission fees. But contracts for differences brokers usually charge the commission for stocks.
For instance, CMC markets, which is a UK headquartered financial brokerage, charges commissions beginning from 0.10% (this is less than a penny for many shares). And commissioners are split into two pieces: opening and closing of the trade.
Financing fees kick in for long positions; because day-to-day positions fall into the investment category (remember, the trader is holding the provider’s money in order to purchase the asset indirectly). This is an interest rate for each day the position is held for.
For instance, let’s say you’re buying CFD units for underlying stocks in the HostingData company. Suppose our current price is £20.00. But you expect that the share price will rise to £23 per share. Which means the initial spread is £24.00-20.00.
There is a 0.1% commission for starting the position, and again when it’s closed. For long holds, there will be overnight fees (usually 2.5% + the LIBOR interest rate).
You buy 60 contracts for £20 per share, taking your position to £1200. Suppose that the share price rises to £24 in 16 days. The starting trade is £1200 by the end trade is £1440, which is a £240 profit.
But because commissions are 0.1% both times (1200 / 1000 x 2), that totals £2.40. And let’s suppose the sum interest rate is 7.5% across 16 days (60 x £24 x 0.075 / 365 = 30p. Because this was held up for 16 days, this is 24p x 16 = £4.80 rounded up).
£240 profit – £2.40 (commissions) – £4.80 = £192.80.
What Are CFDs?
Contracts for differences (CFDs) are contracts between brokers and investors where investors speculate on the future price of an asset. Differences in opening and closing trade prices are settled in cash. There is no physical transference of goods or securities; the underlying asset isn’t traded. And there are often associated fees.
Is Trading CFDs Safe?
CFDs can be very risky; traders who use them consider the potential upside worth the risk, which includes weak industry regulation, possible low liquidity, and the need to maintain high enough margins against the leverage.
How Are CFDs Traded?
Through two transactions: opening the trade and reversing it:
- ✔️ For initial trades that are long or buy positions, the closing trade (second trade) will be a sell. But for initial positions that are short or selling, the closing trade is to purchase.
- ✔️ Total profits are the difference between the starting trade and the closing trade (minus any interest or commissions).